Arkansas Real Estate License Property Valuation and Financing Questions and Answers — Questions and Answers
Question 1: An appraiser is using the cost approach to determine the value of a 10-year-old single-family home in a stable neighborhood. After calculating the replacement cost of the structure, what is the next step in the process?
- Determine the value of the land.
- Subtract the accrued depreciation from the replacement cost. (Correct answer)
- Analyze comparable sales in the area.
- Calculate the potential rental income.
Correct answer: Subtract the accrued depreciation from the replacement cost.
In the cost approach, the formula is: Replacement Cost - Accrued Depreciation + Land Value = Property Value. Therefore, after estimating the cost to replace the structure new, the appraiser must calculate and subtract the amount of value lost due to physical deterioration, functional obsolescence, and external obsolescence.
Question 2: A first-time homebuyer in Arkansas is seeking a loan with the lowest possible down payment. They have a credit score of 600. Which loan program would most likely meet their needs?
- Conventional Loan
- VA Loan
- FHA Loan (Correct answer)
- Rural Development Loan
Correct answer: FHA Loan
FHA loans are insured by the Federal Housing Administration and are designed for low-to-moderate-income borrowers. With a credit score of 580 or higher, a borrower can qualify for a down payment as low as 3.5%. While VA and Rural Development loans also offer low or no down payment options, they have specific eligibility requirements (veteran status or property location) that are not mentioned in the scenario.
Question 3: A buyer is purchasing a home for $250,000 and is obtaining a loan for $200,000. What is the loan-to-value (LTV) ratio for this transaction?
- 75%
- 80% (Correct answer)
- 85%
- 125%
Correct answer: 80%
The Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the property's appraised value or sale price, whichever is less. In this case, $200,000 (Loan Amount) ÷ $250,000 (Value) = 0.80, or 80%.
Question 4: Which of the following is a key feature of a VA-guaranteed loan that benefits a veteran homebuyer?
- A mandatory minimum 3.5% down payment is required.
- The loan requires the borrower to pay monthly private mortgage insurance (PMI).
- The loan is directly funded by the Department of Veterans Affairs.
- A one-time VA funding fee is typically required instead of monthly mortgage insurance. (Correct answer)
Correct answer: A one-time VA funding fee is typically required instead of monthly mortgage insurance.
Instead of monthly mortgage insurance (like PMI or MIP), most borrowers using a VA loan pay a one-time funding fee. This fee helps to offset the costs of the program for taxpayers. VA loans often require no down payment, and they are guaranteed, not directly funded, by the VA.
Question 5: Under Arkansas law, how is the 'assessed value' of a property calculated for tax purposes?
- It is set at 100% of the property's appraised market value.
- It is determined by the most recent sale price of the property.
- It is calculated as 20% of the property's true market value. (Correct answer)
- It is a fixed amount based on the property's square footage.
Correct answer: It is calculated as 20% of the property's true market value.
Arkansas state law requires the assessment level for property taxes to be 20% of the current market value. The county assessor first determines the true market value and then multiplies it by 20% to arrive at the assessed value, which is then used to calculate the property tax bill.
Question 6: A private lender in Arkansas makes a non-mortgage consumer loan to an individual. Which of the following is true regarding the interest rate under Arkansas's usury laws?
- There is no maximum interest rate limit for any loan in Arkansas.
- The maximum rate is fixed at 10% per annum by the state constitution.
- Lenders can charge any interest rate agreed upon in the contract.
- The state constitution sets a maximum interest rate, which for most consumer contracts is 17% per year. (Correct answer)
Correct answer: The state constitution sets a maximum interest rate, which for most consumer contracts is 17% per year.
Arkansas has one of the more restrictive usury laws in the country, with the maximum rate of interest set in the state's constitution. For consumer loans and contracts, this rate is capped at 17% per year. There are some exceptions and different rules for other types of loans, but this is the general constitutional limit.
